The JPMorgan Equity Premium Income ETF (JEPI) is one of the most popular active ETFs in the world with $38 billion in assets under management. While investors appreciate its attractive 8% yield, asset managers envy its $133 million in estimated annual fee income. So, it shouldn’t come as a surprise that there’s some new competition in the option income ETF space.
YieldMax and NEOS recently launched active ETFs focused on niche corners of the option income space: real estate and cryptocurrencies.
Leveling Up Real Estate Income
Most investors turn to real estate for steady income. According to Nareit data, the average real estate investment trust (REIT) pays a 4.29% yield compared to a paltry 1.22% for the S&P 500 index. However, these yields are still well below what investors could earn with option income ETFs like JEPI. 1
The NEOS Real Estate High Income ETF (IYRI) aims to provide higher yields using a data-driven call option strategy on ETFs that track the Dow Jones U.S. Real Estate Capped Index. In other words, they mirror JPMorgan’s strategy with the S&P 500, but focus on the higher-yielding real estate sector instead.
While IYRI hasn’t paid any distributions yet (it’s too new), the NEOS S&P 500 High Income ETF (SPYI) —a JEPI competitor—has an 11.91% distribution rate. Both IYRI and SPYI offer monthly distributions, which many income investors prefer for retirement budgeting reasons.
The fund’s 0.68% expense ratio makes it more expensive than JEPI, but cheaper than many mutual fund alternatives.
Generating Income From Crypto
Real estate may be a well-known source of yield, but it’s not the most exciting corner of the stock market. Investors looking for a little more buzz may want to instead look at the YieldMax Crypto Industry & Tech Portfolio Option Income ETF (LFGY), which offers more exposure to—as its name suggests—crypto.
Like JEPI and IYRI, the fund leans on covered calls and related strategies to generate income. These strategies have the benefit of delivering extra portfolio income while helping limit downside risk by offsetting declines. Other strategies like collars provide even more protection against significant downside.
The fund is still too new to offer any clues into distribution yields, but the portfolio includes well-known crypto companies like MicroStrategy, Coinbase, and Riot Platforms. These companies have seen a significant jump over the past month alongside cryptocurrencies like Bitcoin.
The fund’s 0.99% expense ratio is higher than many active ETFs in the space, but it could be an acceptable trade-off for those seeking crypto exposure.
Alternative Option Income ETFs
JPMorgan, YieldMax, and NEOS aren’t the only asset managers launching option income-focused ETFs.
Popular Alternative Option Income ETFs
These ETFs are sorted by their one-year total return, which ranges from 8.5% to 20%. They have AUM between $2.9B and $38B, with expenses running between 0.35% and 0.75%. They are currently yielding between 4.8% and 12.1%.
| Name | Ticker | Type | Actively Managed? | AUM | 1-year Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Global X NASDAQ 100 Covered Call ETF | QYLD | ETF | No | $8.38B | 20.1% | 12.1% | 0.61% |
| Global X S&P 500 Covered Call ETF | XYLD | ETF | No | $2.93B | 19.5% | 10.5% | 0.60% |
| Amplify CWP Enhanced Dividend Income ETF | DIVO | ETF | Yes | $3.89B | 18.6% | 4.8% | 0.56% |
| JPMorgan Equity Premium Income ETF | JEPI | ETF | Yes | $38B | 13.5% | 8.1% | 0.35% |
| FT Vest S&P 500 Dividend Aristocrats Target Income ETF | KNG | ETF | No | $3.65B | 8.5% | 8.9% | 0.75% |
What's the Catch?
Covered calls and other income-focused option strategies are a great way to increase portfolio income and even reduce risk. But these strategies also come with an important trade-off: opportunity cost.
Most investors appreciate that the stock market increases over time. When you write a call option, you’re agreeing to sell at a predetermined price, which effectively limits your upside potential. While you receive income for selling the option, you may miss out on significant gains.
According to Morningstar data, derivative income ETFs tracking the S&P 500 index captured a median 60% of the benchmark’s gain (and less for those tracking the Nasdaq), while experiencing 72% of the index’s declines (60% for the Nasdaq). In other words, investors only see one-third to one-half of the market returns. 2
These effects can be devastating for younger investors counting on the magic of compounding interest to grow their portfolios. However, retirement investors may be willing to accept the trade-offs for the regular monthly income.
The Bottom Line
The success of JEPI has drawn many other asset managers into the option income ETF space, including NEOS and YieldMax with their unique spins on the strategy. While these ETFs may be effective in generating a higher yield for your portfolio, you may also be leaving capital gains on the table, which add up over time.
1 Nareit (December 2024). REIT Industry Financial Snapshot?
2 Kiplinger (November 2024). Should You Buy These Covered-Call Funds?
